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[ThatHawaiiGuy]

Yes, it finally seems as though the long-awaited arrival of some new (and some long-lost) gold sector investors is materializing. Sure, a lot of these folks are chasing momentum and strength, just as they are wont to do where any other asset class is concerned. But it seems as though some of this new money is coming into the gold sector to stay for a while. After all, regardless of the day-to-day news, the long-term picture is unmistakable:

DEFICITS AND A WEAKER DOLLAR--A few days ago, President Bush asked Congress to go another $87 billion into debt to support the crumbling occupation of Iraq. Add to this the continued pilfering of the Social Security Trust Fund, new expenditures/subsidies for everything from energy to prescription drugs and more, and there seems no end to the destruction of America's fiscal picture and, ultimately, the currency.

GLOBAL FEARS--The world is not a safer place since September 11, 2001. Iran and North Korea both are rattling nuclear sabers. Israel appears set to go after PLO leader Yasser Arafat, plunging the Middle East into greater conflict. Iraq is unraveling. With the world on a knife's edge and nominal economic recoveries still suspect, any major, new shock could quickly send the world back into recession.

THE RETURN OF STAGFLATION--It's time to get re-acquainted with stagflation, a phenomenon that marked much of the 1970's--a time, lest you've forgotten, that gold saw its greatest days. A combination of weak economic activity and rapidly rising prices kept financial assets in check, but led to huge moves for a number of commodities. We're seeing such an environment building again; one which is extraordinarily bullish for most commodities once more, including gold.

In the near term, the bulls retain the upper hand. Each time in recent days when gold has drifted back down slightly, new buying has immediately materialized. We'll see some choppy trade for perhaps a few more days as the recent gains are consolidated. Next, though, will come a new attempt by the bulls to knock a few more shorts off the fence and into covering. Particularly if gold can move above its February 5 high of $391.00 per ounce, it could--albeit briefly--be off to the races, as a stampede could quickly vault gold to well over $400.00 per ounce. Especially if such a move occurred suddenly, we'd want to watch it for an opportunity to quickly take some profits off the table temporarily. But make no mistake: the broadening of the interest in the gold sector as I have earlier described it here is the single most important bullish development in months, and has removed much of the risk of holding either gold or gold shares, even at these prices.


All of it:

http://www.321gold.com/editorials/temple/temple091503.html